Real Estate crowdfunding – an odd coupling of words, hah? Seems like it at first, but these two seemingly different markets are not only crossing paths recently, but are also marking an important turning point in both markets. Real estate crowdfunding is a way of raising money for investors through the use of social media. iFunding, a real estate crowdfunding website, estimates the market at $11 trillion! In addition to this, new regulations are being modified to include more investors into the market.
What’s happening in the real estate crowdfunding market now? How can you be a part of that? Read along to get your questions answered about the basics of real estate crowdfunding.
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Real estate crowdfunding is not completely a new phenomena. In short, crowdfunding uses the accessibility of social media networking to reach the word about new businesses to friends, family, networks, and the public. It is an easier way for investors to raise capital. It comes as no surprise that various investors have entered the field. Each crowdfunding platform has it’s own target and strategy, but usually all accommodating accredited, wealthy investors making it hard for rookies to enter the field.
However, recently there’s been changes in the JOBS Act that will open the field to those smaller, newer investors. Nowadays, there’s a low entry associated with real estate crowdfunding. In essence, the JOBS Act, signed in 2012, made investor crowdfunding possible and legal.
With that being said, while now non-accredited investors can jump into real estate crowdfunding, they are limited in the amount they can invest in. For instance, if a an investor has a net worth below $100,000, then they are limited to investing only 5% of their net worth. If the investor has a net worth greater than $100,000, then they are entitled to invest 10% of their net worth. Yet, no investor is enabled to buy more than $100,000 in real estate crowdfunding in a one year period.
What does this mean for investors? Changes have been made to accommodate newer investors; and yet, given the limitations, accredited, wealthy investors are provided with the larger opportunities. A person may easily choose an investor who can invest 10% of their large net worth, rather than a investor who can invest 5% of their lower net worth.
The pros and cons
Real estate crowdfunding comes with a set of pros and cons. So, before jumping into this field, check out the list to make an informed decision.
- As an investor, you can choose which real estate investment projects you would like to work on.
- Investors can work directly with real estate developers.
- Investors have a say in the real estate developing process.
- There are plenty of real estate options to choose from.
- If the market goes down, investors lose money.
- When it comes to real estate crowdfunding, there is a higher risk in investment default than in other forms, such as peer-to-peer funding.
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Real Estate Crowdfunding websites
Still want to get involved with real estate crowdfunding?
The best way to really understand real estate crowdfunding is by exploring the different sites. Avoid getting lost in a site that won’t survive, so many of them are headed by college students or recent graduates without much long-term planning.
1. Realty Mogul: LA based crowdfunding site, focused on real estate.
2. Fundrise: Funndraise and its crowd have invested over tens of millions of dollars in real estate!
3. CrowdStreet: Focused on professionally managed real estate projects. You can invest with as little as $5000!
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The bottom line…
Real estate crowdfunding is now a booming sensation as both field have really proved themselves in the past years. There might be a wonderful investing opportunity for you in real estate crowdfunding.
Remember, that you can always use Mashvisor for help on finding the right investments for you.